A study of relation between comparative advantage indices of wheat and support policies by using econometrics approach

Abstract

Comparative advantage is a term used to describe a production capability with low level output price and minimum opportunity costs. This study was done to evaluate the importance of maintaining comparative advantage for a strategic crop such as wheat in terms of changes and contributing factors over time. In this study data has been calculated and investigated by comparative advantage indices such as Net Social Profit and Domestic Resource Cost for the period of 1984-2010 in Iran. Following a stationary test and an econometrics model the Vector Error Correction Model (VECM) was applied to analyze the relation between guaranteed price policy, producer support estimate index and subsidies by comparative advantage indices. Results showed that as producer support is increased, comparative advantage decreased and the use of cheaper price inputs led to less competitiveness although the guaranteed price policy led to an improvement in scale advantage index, but had no positive effect on the efficiency advantage index. This study suggests that there is a need to perform investigations considering the relationship of cost and world market price and a change from direct support of the agricultural sector to indirect support in the form of structural support, and finally with the implementation of targeted subsidy policy, these multiple goals can be achieved